In re Thibodeau
| Decision Date | 19 May 2000 |
| Docket Number | No. 99-18517-JNF.,99-18517-JNF. |
| Citation | 248 BR 699 |
| Parties | In re Cheryl THIBODEAU, Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Richard Gottlieb, Law Offices of Richard Gottlieb, New York City, for Debtor.
Doreen Solomon, Office of the Chapter 13 Trustee, Milton, MA, for Chapter 13 Trustee.
The matter before the Court is the Chapter 13 Trustee's Objection to Confirmation of the Chapter 13 Plan (the "Plan") filed by the Debtor, Cheryl Thibodeau (the "Debtor"). The Debtor's Plan is for a 36 month term. The Trustee objects to the separate classification of the Debtor's pre-petition arrearage on unsecured and non-dischargeable student loan debt. Under the Plan, the Debtor proposes to pay 100% of an arrearage on a nondischargeable student loan, while paying general unsecured claims a 27% dividend. The Court held a hearing on the Objection and the Debtor's response on February 7, 2000 and took the matter under advisement.
The issue presented is whether 11 U.S.C. § 1322(b)(5), which permits the curing of any default and the maintenance of payments while the case is pending on claims on which the last payment is due after the final payment under the plan is due, supercedes § 1322(b)(1), which bans unfair discrimination among classes of unsecured creditors. The Court now makes its findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052. For the reasons set forth below, the Court sustains the Chapter 13 Trustee's Objection and denies confirmation of the Debtor's Chapter 13 Plan.
The material facts necessary to decide the issue are not in dispute. The Debtor filed a petition for Chapter 13 relief on October 21, 1999 and concurrently filed her schedules and Chapter 13 Plan. On Schedule D-Creditors Holding Secured Claims, the Debtor listed two creditors: 1) Fleet Mortgage with a claim in the sum of $230,000; and 2) Toyota Motor Credit Corporation with a claim in the sum of $17,000. The Debtor intends to pay all secured claims outside the Plan. On Schedule ECreditors Holding Unsecured Priority Claims, the Debtor listed two creditors: 1) the Internal Revenue Service with a claim in the sum of $6,316; and 2) the Massachusetts Department of Revenue with a claim in the sum of $1,188. The Debtor intends to pay these claims in full through her Plan.
On Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Debtor listed four creditors with claims totaling $183,158.95. The Debtor listed Sallie Mae Servicing sic ("Sallie Mae") with two claims: 1) "Student Loans (HEAL loan program)" in the sum of $61,064.37; and 2) "Consolidated Loans (SMART loan program)" in the sum of $109,900.90.
On Schedule I-Current Income of Individual Debtor, the Debtor listed total monthly income of $5,780.19. On Schedule JCurrent Expenditures of Individual Debtor(s), she listed total monthly expenses of $4,333.97. The Debtor's excess income thus totals $1,446.22.
The Debtor intends to pay $1,374.00 per month into her Plan. In the Plan, she indicates that there is an arrearage of $4,049 on the HEAL loan,1 which is nondischargeable pursuant to 11 U.S.C. §§ 1328(a)(2) and 523(a)(8). The Consolidated Loans (SMART loan program) and other miscellaneous credit card debt, totaling $122,094.58, which make up the balance of the "General Non-Priority Unsecured Claims," are treated as dischargeable debts.2
In Section IV of the Plan—Claims of Unsecured Creditors, the Debtor provides for "Treatment of Dischargeable Claims" and "Treatment of Separately Classified Non-Dischargeable Claims under 11 U.S.C. § 1328(a)."3 In the section "Treatment of Dischargeable Claims," she lists claims that total $122,095 and proposes to pay them a dividend of 27%. This treatment results in total payments of approximately $32,966.
In the section providing for "Treatment of Separately Classified Non-Dischargeable Claims," the Debtor lists the HEAL loan arrearage of $4,049. She proposes to pay the claim in full at the rate of $112.47 per month and to continue making the regular postpetition payments on the loan outside of the Plan. On Schedule J, the Debtor discloses that the monthly payment on the HEAL loan is $585.00.
The Chapter 13 Trustee objects to confirmation of the Plan on the basis that the separate classification of the unsecured student loan arrearage, which results in the student loan creditor receiving a higher dividend than other general unsecured creditors, constitutes unfair discrimination and violates 11 U.S.C. §§ 1322(a)(3) and (b)(1). Although the Trustee does not object to the Debtor maintaining her monthly student loan obligations outside the Plan, however, she contends that the Debtor's proposal to cure the arrearage in accordance with § 1322(b)(5) is unfair and discriminatory to the Debtor's remaining general unsecured creditors. The Trustee argues that the Debtor should be required to propose a plan that pays the arrearage portion of Sallie Mae's HEAL claim the same dividend as her remaining general unsecured creditors, which would require the Debtor to pay the balance of the arrearage, or approximately $3,000, upon completion of the plan. The Trustee further argues that the Debtor's current income and expenses are such that it would be possible for her to do so.
The Trustee also asserts that by paying the HEAL loan creditor's arrearage in full, the Debtor "seeks to in effect add a priority class." The Trustee maintains that if Congress had intended that debtors be able to prefer holders of student loan obligations over other creditors it would have expressly provided for such treatment.
In response to the Trustee's Objection, the Debtor asserts that the separate classification of the HEAL loan arrearage does not constitute "unfair discrimination" within the meaning of 11 U.S.C. § 1322(b)(1) because the separate classification and proposed treatment of the HEAL loan is permitted by 11 U.S.C. § 1322(b)(5). She maintains that because the Bankruptcy Code specifically provides for the curing of unsecured obligations that mature beyond the life of the plan, Congress intended to give debtors the flexibility to separately classify long term debt without violating the ban on unfair discrimination.
The Debtor further contends that the Trustee's argument for pro rata treatment of the HEAL loan arrearage is contrary to the concept of curing a default within the context of 11 U.S.C. § 1322(b)(3) and (b)(5). She argues that pursuant to § 1322(b)(5) providing anything less than payment in full of the arrears would render the "curing," as used in the statute, meaningless and would be contrary to the principle set forth in U.S. v. Ven-Fuel, Inc., 758 F.2d 741, 751-52 (1st Cir.1985), in which the court emphasized the principle of statutory construction that "all words and provisions of statutes are intended to have meaning and are to be given effect, and no construction should be adopted which would render statutory words or phrases meaningless, redundant or superfluous."
As the Trustee has raised the issue of whether the Debtor's plan unfairly discriminates, the Debtor has the burden of persuading this Court that the classification and treatment of the HEAL loan arrearage does not discriminate unfairly and that her plan meets the requirements of § 1325 and is confirmable. In re Regine, 234 B.R. 4, 6 (Bankr.D.R.I.1999); In re Colfer, 159 B.R. 602, 608 (Bankr.D.Maine 1993).
Section 1322 sets forth mandatory and discretionary provisions for Chapter 13 plans.4 It is well recognized that the nondischargeability of student loan debt is not a sufficient ground to permit separate classification and more favorable treatment of such debt. In re Sullivan, 195 B.R. 649, 654 (Bankr.W.D.Tex.1996); In re Colfer, 159 B.R. at 603.5See also In re Chandler, 210 B.R. 898, 901 (Bankr.D.N.H. 1997); In re Saulter, 133 B.R. 148, 149 (Bankr.W.D.Mo.1991).
In Saulter, however, the court, while finding that separate classification based upon nondischargeability constituted unfair discrimination, suggested that treatment of the loan as a long term debt under § 1322(b)(5) would be acceptable. The court determined that "permitting debtors to maintain their payments to unsecured creditors at the full contract rate, as expressly permitted by § 1322(b)(5) is not `unfair' discrimination" and pursuant to that section "debtors may cure any defaults that exist and may maintain contractual payments as required for long-term unsecured debt" during the term of the plan. 133 B.R. at 150. The court observed the following:
In contrast to the court in Saulter, other courts attempt to analyze subsections 1322(b)(1) and (b)(5) together to give full meaning to the statute. The court in Chandler observed that § 1322(b)(1) must be applied consistently with § 1322(b)(5), reasoning that:
if Congress had wanted courts not to consider whether putting unsecured creditors in a separate class and providing for full monthly payments on the unsecured creditors\' claims during the course of the plan constituted unfair discrimination, Congress would have drafted section 1322(b)(5) to read "notwithstanding paragraphs (1) and (2) of this subsection, a plan may provide for the curing of any default . . . and maintenance of payments. . . ." Congress did not draft the statute in such a manner.
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